ATHENS, May 30 (Reuters) - European Union and IMF officials are expected to deliver their verdict this week on Greece's faltering drive to bring its budget deficit under control, but ordinary Greeks have warned that their patience is running thin.

Greece last year won a 110 billion euro ($157.5 billion) rescue package from the EU and International Monetary Fund, but since then has struggled to meet its deficit reduction targets, heightening the risk of a default on its 327 billion euro debt -- equivalent to 150 percent of economic output.

European Central Bank board member Lorenzo Bini Smaghi issued a dire warning against default and told the Financial Times it was a "fairytale" to think that Greece's debts could be restructured in an orderly way.

"If you look at financial markets, every time there is mention of a word like 'restructuring' or 'soft restructuring' they go crazy - which proves that this could not happen in an orderly way, in this environment at least," he said.

He added: "If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalisation -- but where would the money come from?"

The Italian said Greece could instead reduce its debt by selling assets and changing its tax and expenditure systems. "If you look at the balance sheet of Greece, it is not insolvent."

But Socialist Prime Minister George Papandreou has failed to win backing from the opposition to adopt fresh austerity steps, more economic reforms and faster sales of state assets, as demanded by the EU and IMF.

"IMF SHOULD GET OUT"

Tens of thousands of protesters packed a central Athens square on Sunday to denounce the nation's entire ruling class and vent their anger at the IMF and its demands for yet more belt-tightening.

Black-hooded youths have been battling police since the austerity drive began last year, but the demonstrators who took over Syntagma Square, in front of parliament, were families, from children to the elderly, who had no class wars to wage.

Mobilised by Facebook rather than opposition parties or unions, they booed, whistled and chanted "Thieves! Thieves!" as they pointed at the parliament building.

"The IMF should get out. There are other solutions without them," said Ifigenia Argyrou, a 57-year-old insurance consultant.

Police put Sunday's crowd at 30,000 although the protesters say the authorities consistently underestimate their numbers.

Papandreou had been due to rally his PASOK party on Monday behind yet deeper austerity to win new international aid. But PASOK cancelled the executive council meeting on Sunday without a detailed explanation.

Under last year's bailout plan, Greece was supposed to resume borrowing on financial markets next year but that now seems increasingly unlikely, so the EU is preparing a new aid plan that would meet Greece's funding needs in 2012 and 2013.

In return, the EU wants Athens to impose yet more austerity and reform, including privatisations. The officials are checking Greece's fiscal progress before approving a 12 billion euro aid tranche -- the fifth under the current bailout -- and possibly new funding the country needs to avoid default.

German weekly magazine Der Spiegel fanned fears over the weekend Greece might not get the money, saying it might have missed all fiscal targets set by its lenders.

Both Greece and the IMF denied the report, while Greek Finance Minister George Papaconstantinou was upbeat on the budget negotiations.

"We expect that they will conclude successfully in the next few days," he said in a statement.

Pressure continues to pile on the socialist government, with the EU Commission's top economics official, Olli Rehn, saying time is running out for Greece to secure political agreement on an economic adjustment programme. With the team of EU and IMF officials in Athens expected to complete its review of Greek finances soon, Papandreou also needs to prevent fatigue from spreading to his own party as its popularity declines.

PASOK has a comfortable majority in parliament but one weekend opinion poll showed it had lost its lead for the first time since it won elections in 2009.

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